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Item 1A. Risk Factors

2024-01-26 compared with 2022-12-29 · 144 added, 110 removed, 381 unchanged (40% of the section changed)

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Reduced utilization levels of our aircraft under our agreements with our major partners would adversely impact our financial results.

If our major partners experience events that negatively impact their financial strength or operations, our operations may be negatively impacted.

If United experiences events that negatively impact its financial strength or operations, our operations may be negatively impacted.

We have a significant amount of debt and other contractual obligations, certain of which are subject to financial and other covenants.

The potential impact of the deployment of 5G wireless telecommunications system to interfere with aviation equipment

The loss of key personnel or the inability to attract additional qualified personnel could adversely affect our business.

If the supply of pilots to the airline industry remains constrained and pilot attrition continues to exceed historical levels, our results of operations and financial condition would be negatively impacted.

If the supply of pilots and mechanics to the airline industry remains constrained and pilot attrition continues to exceed historical levels, our results of operations and financial condition would be negatively impacted.

Mechanic attrition and difficulty recruiting and retaining qualified maintenance technicians may negatively affect our operations and financial condition.

Increases in our labor costs may adversely affect our business, results of operations, and financial condition.

Our major partners may expand their direct operation of regional jets or seek other independent airlines to service their regional aircraft needs.

We may be limited from expanding our flying within our major partners' flight systems.

United may expand its direct operation of regional jets or seek other independent airlines to service their regional aircraft needs.

We may be limited from expanding our flying within United's flight system.

The residual value of our owned aircraft may be less than estimated in our depreciation policies.

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We face tail risk in that we have aircraft lease commitments that extend beyond our existing contractual terms on certain aircraft, and may incur substantial maintenance costs as part of return obligations on leased aircraft.

We may incur substantial maintenance costs as part of our leased aircraft return obligations.

We may become involved in litigation that may materially adversely affect us.

Maintenance costs will likely increase as the age of our jet fleet increases.

Disagreements regarding the interpretation of our agreements with our major partners could have an adverse effect on our operating results and financial condition.

If we face problems with any of our third-party service providers, our operations could be adversely affected.

Maintenance costs will likely increase as the age of our jet fleet increases.

Regulatory changes or tariffs could negatively impact our business and financial condition.

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The occurrence of an aviation accident involving our aircraft would negatively impact our operations and financial condition.

If our common stock is delisted from Nasdaq and is traded over-the-counter, your ability to trade and the market price of our shares of common stock may be restricted and negatively impacted.

The market price of our common stock may be volatile, which could cause the value of an investment in our stock to decline.

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We currently do not intend to pay dividends on our common stock.

As an emerging growth company, reduced disclosure and regulatory requirements applicable to us may make our stock less attractive to investors.

The requirements of being a public company may strain our resources, increase our operating costs and divert management’s attention.

We are required to assess our internal control over financial reporting on an annual basis, and any future adverse findings from such assessment could result in a loss of investor confidence in our financial reports and have a material adverse effect on our business.

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We are highly dependent on our agreements with our major partners.

We derive substantially all of our operating revenue from our capacity purchase agreements with our major partners.

We derive substantially all of our operating revenue from our CPA with United and previously with American.

American accounted for approximately 23% and 45% of our total revenue for our fiscal years ended September 30, 2023 and 2022, respectively.

United accounted for approximately 73% and 48% of our revenue for our fiscal years ended September 30, 2023 and 2022, respectively.

A termination of either our American or United capacity purchase agreements would have a material adverse effect on our business prospects, financial condition, results of operations, and cash flows.

Business” for additional information on our capacity purchase agreements with American and United.

If our capacity purchase agreements with American or United were terminated or not renewed, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss.

Neither American nor United are under any obligation to renew their respective capacity purchase agreements with us.

A termination or expiration of either of these agreements would likely have a material adverse effect on our financial condition, cash flows, ability to satisfy debt and lease obligations, operating revenues, and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of the affected aircraft by other airline partners, or, alternatively, obtain the airport facilities, gates, ticketing and ground services and make the other arrangements necessary to fly as an independent airline.

We may not be able to enter into substitute capacity purchase arrangements, and any such arrangements we might secure may not be as favorable to us as our current agreements.

Our American CPA terminated and we ceased operating aircraft on behalf of American effective April 4, 2023.

A termination of our United CPA would have a material adverse effect on our business prospects, financial condition, results of operations, and cash flows.

See “Item 1.

Business”

for additional information on our CPAs with American and United.

If our United CPA is terminated or not renewed, we would be significantly impacted and likely would not have an immediate source of revenue or earnings to offset such loss.

United is not under any obligation to renew its CPA with us.

A termination or expiration of this agreement would have a material adverse effect on our financial condition, cash flows, ability to satisfy debt and lease obligations, operating revenues, and net income unless we are able to enter into satisfactory substitute arrangements for the utilization of the affected aircraft by other airline partners, or, alternatively, obtain the airport facilities, gates, ticketing and ground services and make the other arrangements necessary to fly as an independent airline.

We may not be able to enter into substitute CPAs, and any such arrangements we might secure may not be as favorable to us as our current agreements.

Operating an airline independently from our major partners would be a significant departure from our business plan and would likely require significant time and resources, which may not be available to us when needed.

Reduced utilization levels of our aircraft under our agreements with our major partners, to the extent they continue, would have a material adverse impact our results of operations and financial condition .

Reduced utilization levels of our aircraft under our United CPA would have a material adverse impact our results of operations and financial condition.

Historically, our major partners have utilized our flight operations at levels at or near the maximum capacity of our fleet allocations under the applicable CPA agreements.

As previously reported, we operated at significantly lower block hours during fiscal 2020 and fiscal 2021 due to the COVID pandemic, though we experienced a recovery in demand for air travel during the second half of fiscal 2021, which has continued into fiscal 2022.

Notwithstanding the increase in demand for air travel, in recent periods our high level of pilot attrition and pilot training output limitations has resulted in a reduction of our block hours flown.

If we continue to experience pilot attrition above historic levels, we may experience further reductions in the block hours flown under our CPAs by our major partners, and we may not be able to maintain operating efficiencies previously obtained, each of which would negatively impact our operating results and financial condition.

There can be no assurance that we will be able to adequately address the pilot attrition issues or that our major partners will increase the utilization of our aircraft to historical levels in future periods if we do experience an improvement in pilot attrition.

As previously reported, we operated at significantly lower block hours during fiscal 2020 and fiscal 2021 due to the COVID pandemic.

Notwithstanding the increase in demand for air travel during the second half of fiscal 2021 and thereafter, in recent periods our high level of pilot attrition and pilot training output limitations has resulted in a reduction of our block hours flown.

If we continue to experience pilot attrition above historic levels, we may experience further reductions in the block hours flown under our United CPA, and we may not be able to maintain operating efficiencies previously obtained, each of which would negatively impact our operating results and financial condition.

In August 2022, we entered into a Letter of Agreement with the Airline Pilots Association (“ALPA”), which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers.

These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

However, there can be no assurance that we will be able to adequately address the pilot attrition issues or that our major partners will increase the utilization of our aircraft to historical levels in future periods if we do experience an improvement in pilot attrition.

If pilot attrition persists, we may experience additional declines in utilization levels, which would in turn have a material adverse impact on our financial condition and results of operations.

Our American CPA establishes minimum levels of flight operations.

In prior periods, the FAA Qualification Standards and associated regulation related to pilot qualification and flight training standards have negatively impacted our ability to hire pilots at a rate sufficient to support required utilization levels, resulting in certain cases issuing credits to American pursuant to the terms of our American CPA, temporarily removing aircraft from service or performance penalties.

Additionally, American may withdraw covered aircraft under certain circumstances pursuant to the terms of our American CPA.

Our United CPA does not require United to schedule any specified minimum level of flight operations for our aircraft.

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While United pays us a fixed monthly revenue amount for each aircraft under contract, a significant reduction in the utilization levels of our fleet in the future or removal of aircraft from our United CPA at United's election could reduce our revenues based on the number of flights and block hours flown for United.

Continued challenges with hiring, training, and retaining replacement pilots may lead to reduced utilization levels of our aircraft and additional penalties under our capacity purchase agreements and our operations and financial results could be materially and adversely impacted.

Additionally, our major partners may change routes and frequencies of flights, which can negatively impact our operating efficiencies.

Changes in schedules may increase our flight costs, which could exceed the reimbursed rates paid by our major partners.

Reduced utilization levels of our aircraft or other changes to our schedules under our capacity purchase agreements would adversely impact our operating results and financial condition.

If our major partners experience events that negatively impact their financial strength or operations, our operations also may be negatively impacted.

We may be directly affected by the financial and operating strength of our major partners.

Any events, such as COVID-19 or other pandemics, that negatively impact the financial strength of our major partners or have a long-term effect on the use of our major partners by airline travelers would likely have a material adverse effect on our business, financial condition, and results of operations.

In the event of a decrease in the financial or operational strength of any of our major partners, such partner may seek to reduce, or be unable to make, the payments due to us under their capacity purchase or flight services agreement.

Continued challenges with hiring, training, and retaining replacement pilots may lead to reduced utilization levels of our aircraft and additional penalties under our CPA and our operations and financial results could be materially and adversely impacted.

Additionally, United may change routes and frequencies of flights, which can negatively impact our operating efficiencies.

Changes in schedules may increase our flight costs, which could exceed the reimbursed rates paid by United.

Reduced utilization levels of our aircraft or other changes to our schedules under our CPA would adversely impact our operating results and financial condition.

If United experiences events that negatively impact its financial strength or operations, our operations also may be negatively impacted.

We may be directly affected by the financial and operating strength of United.

Any events, such as new pandemics, that negatively impact the financial strength of United or have a long-term effect on the use of United by airline travelers would likely have a material adverse effect on our business, financial condition, and results of operations.

In the event of a decrease in United's financial or operational strength, United may seek to reduce, or be unable to make, the payments due to us under the United CPA.

In addition, in some cases, they may reduce utilization of our aircraft.

Although we receive guaranteed monthly revenue for each aircraft under contract and a fixed fee for each block hour or flight actually flown, our major partners are not required to schedule any specified level of flight operations for our aircraft.

If any of our current or future major partners become bankrupt, our agreement with such partner may not be assumed in bankruptcy and could be terminated.

Although we receive guaranteed monthly revenue for each aircraft under contract and a fixed fee for each block hour or flight actually flown, United is not required to schedule any specified level of flight operations for our aircraft.

If United becomes bankrupt, our agreement with them may not be assumed in bankruptcy and could be terminated.

This and other events, which are outside of our control, could have a material adverse effect on our business, financial condition, and results of operations.

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The airline business is a capital-intensive business and, as a result, we are highly leveraged.

As of September 30, 2022, we had approximately $615.3 million in total long-term principal balance (including current portion of $97.2 million, of which $2.7 million pertain to finance lease obligations) and $19.4 million available for borrowing under our CIT Revolving Credit Facility.

As of September 30, 2023, we had approximately $538.3 million in total long-term principal balance (including current portion of $163.6 million, of which $57.7 million pertain to finance lease obligations) and $20.1 million available for borrowing under our United Revolving Credit Facility.

Substantially all of our long-term debt was incurred in connection with the acquisition of aircraft and aircraft engines.

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We also have significant long-term lease obligations, primarily relating to our aircraft fleet, office space, and other facilities.

As of September 30, 2022, we had 16 aircraft under operating leases (excluding aircraft leased at nominal amounts from United and DHL) in addition to other leases of facilities and equipment, with an average remaining term of 3.8 years.

As of September 30, 2023, we had one aircraft under operating leases (excluding aircraft leased at nominal amounts from United and DHL) in addition to other leases of facilities and equipment, with an average remaining term of 6.1 years.

As of September 30, 2023, future minimum lease payments due under all long-term operating leases were approximately $15.2 million and future debt service obligations were $619.5 million, including finance lease obligations and interest payments.

The Company's substantial level of indebtedness, non-investment grade credit ratings, and the availability of Company assets as collateral for future loans or other indebtedness, which available collateral would be reduced under other future liquidity-raising transactions and was reduced during our fiscal year ended September 30, 2021 as a result of CARES Act loan program borrowings, may make it difficult for the Company to raise additional capital if required to meet its liquidity needs on acceptable terms, or at all.

Although the Company's cash flows from operations and its available capital, including the proceeds from financing transactions, have been sufficient to meet its obligations and commitments to date, the material uncertainties arising from the impact of the pilot shortage and attrition and ongoing transition of American operations to United earlier this year raised substantial doubt as to the Company’s ability to continue as a going concern.

The Company is evaluating strategies to obtain the required additional funding for future operations.

These strategies may include, but are not limited to, obtaining equity financing, issuing debt, entering into other financing arrangements, restructuring of operations to grow revenues and decrease expenses, or selling the aircraft held for sale.

However, given the impact of the current economic condition on the U.S.

financial markets, the Company may be unable to access further equity or debt financing when needed.

As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all.

If the Company's liquidity is materially diminished, the Company's cash flow available to fund its working capital requirements, capital expenditures and business development efforts may be materially and adversely affected.

We cannot assure you that our operations will generate sufficient cash flow to make our required payments, or that we will be able to obtain financing to acquire additional aircraft or make other capital expenditures necessary for expansion.

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In addition, several of the Company's debt agreements contain affirmative and negative covenants that, among other things, restrict the ability of the Company and its subsidiaries to enter into, create, incur, assume, or suffer to exist any liens.

See “Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations” of this report for additional information regarding the Company's liquidity and capital resources as of September 30, 2022.

W e are required to comply with certain ongoing financial and other covenants under certain credit facilities and leases, and if we fail to meet those covenants or otherwise suffer a default thereunder, our lenders and lessors may accelerate the payment of such obligations.

Under our (i) credit and guaranty agreement with CIT (" CIT Revolving Credit Facility "), we are required to comply with a minimum consolidated interest and rental coverage ratio at the end of each fiscal quarter during the term of such credit facility, (ii) credit agreement with EDC, we are required to comply with a minimum fixed charge coverage ratio at the end of each fiscal quarter during the term of such credit facility, (iii) aircraft lease facility (" RASPRO Lease Facility ") with RASPRO we are required to comply with minimum current ratio and debt ratio covenants and a minimum available cash covenant

until all amounts outstanding thereunder have been paid i n full, and (iv) loan and guarantee agreement with the U.S.

Department of the Treasury, we are required to comply with a minimum collateral coverage ratio, measured monthly during the term of such credit facility, and a minimum liquidity level, measured at the close of any business day during the term of such credit facility.

See “Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations”

of this report for additional information regarding the Company's liquidity and capital resources as of September 30, 2023.

The deployment of 5G communications systems by telecommunication service providers could interfere with aviation equipment, potentially creating a material adverse effect on our business, results of operations, and financial condition.

On January 17, 2022, certain major airlines warned the United States federal government of potential adverse impacts of deploying new 5G communications systems including interfering with airplane operational and safety equipment.

This could result in the cancellation of flights, diminishing safety measures, and damage to equipment.

Any of these consequences could result in an adverse effect on our results of operations.

The DOT and FAA have required that all United States carriers install radio altimeters

that are tolerant to 5G systems by February 2024.

It is uncertain whether the DOT or FAA will impose additional restrictions that could have an adverse effect on our operations.

We are required to comply with certain ongoing financial and other covenants under certain credit facilities and leases, and if we fail to meet those covenants or otherwise suffer a default thereunder, our lenders and lessors may accelerate the payment of such obligations.

Under our (i) credit and guaranty agreement with United (the "United Revolving Credit Facility"), we are required to comply with a minimum consolidated interest and rental coverage ratio at the end of each fiscal quarter during the term of such credit facility, (ii) credit agreement with EDC, we are required to comply with a minimum fixed charge coverage ratio at the end of each fiscal quarter during the term of such credit facility, (iii) aircraft lease facility ("RASPRO Lease Facility") with RASPRO we are required to comply with minimum current ratio and debt ratio covenants and a minimum available cash covenant until all amounts outstanding thereunder have been paid in full, and (iv) loan and guarantee agreement with the U.S.

Department of the Treasury (the "UST Loan"), we are required to comply with a minimum collateral coverage ratio, measured monthly during the term of such credit facility, and a minimum liquidity level, measured at the close of any business day during the term of such credit facility.

Failure to comply with the terms of these credit facilities and financing arrangements and the ongoing financial and other covenants thereunder would result in an event of default (as defined in the applicable credit facility and financing agreement) and, to the extent the applicable lenders so elect, an acceleration of our existing indebtedness following the expiration of any applicable cure periods, causing such debt to be immediately due and payable.

Acceleration of such indebtedness would also trigger cross-default clauses under our other indebtedness.

It could also result in the termination of all commitments to extend further credit under the CIT Revolving Credit Facility.

It could also result in the termination of all commitments to extend further credit under the United Revolving Credit Facility.

We currently do not have sufficient liquidity to repay all of our outstanding debt in full if such debt were accelerated.

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In prior periods, the FAA Qualification Standards (and associated regulations) related to pilot qualification and flight training standards discussed in “Item 1.

Government Regulation” dramatically reduced the supply of qualified pilot candidates and negatively impacted our ability to hire pilots at a rate sufficient to support required utilization levels under our CPAs, resulting in certain cases issuing credits to our major partners, temporarily removing aircraft from service under a CPA, or performance penalties.

More recently, our operations have continued to be negatively impacted by the pilot shortages that have plagued the airline industry as whole, and by the associated pilot attrition that we believe has disproportionately impacted regional airlines, including us.

In prior periods, the FAA Qualification Standards (and associated regulations) related to pilot qualification and flight training standards discussed in “Item 1.

Government Regulation”

dramatically reduced the supply of qualified pilot candidates and negatively impacted our ability to hire pilots at a rate sufficient to support required utilization levels under our CPAs, resulting in certain cases issuing credits to United, temporarily removing aircraft from service under a CPA, or performance penalties.

More recently, our operations have continued to be negatively impacted by the severity of the pilot shortages that have plagued the airline industry as whole, and by the associated elevated pilot attrition that

we believe has disproportionately impacted regional airlines, including us.

Our pilots continue to be recruited by other carriers, primarily the major carriers and heavy equipment cargo operators, which generally offer higher salaries and more extensive benefit programs.

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There has been significant press coverage during fiscal 2023 regarding the issues stemming from the pilot shortages (namely flight cancellations and delays by the major carriers), with no airline being immune to the issues created by the pilot shortage or the associated negative press.

As we have in the past, we are taking important steps to further attract, hire and retain qualified pilots, including the ongoing implementation of significant pilot wage and bonus increases, pilot retention initiatives, increases in training capacity, and other cost efficiency initiatives.

Notwithstanding these steps, our current rate of hiring has not kept pace with attrition.

As such, even with increases in training capacity we are not currently able to hire qualified pilots at a rate sufficient to fill all available classroom training spaces, which in turn has negatively impacted the number of pilots available for scheduled operations.

No assurance can be given that the measures we are currently taking or may take in the future will enable us to attract, hire and train pilots at a rate necessary to support our operations.

While we remain engaged in negotiations with ALPA over other areas of our collective bargaining agreement with ALPA, we believe these pay increases will positively impact our ability to attract, hire, and retain pilots in future periods.

We have taken important steps to further attract, hire and retain qualified pilots, including the implementation of significant pilot wage and bonus increases, pilot retention initiatives, increases in training capacity, and other cost efficiency initiatives.

Since implementing these measures, attrition rates have returned to pre-covid levels, and we have been able to hire qualified pilots at a rate sufficient to fill available classroom training spaces.

No assurance can be given that the measures we have taken or may take in the future will enable us to attract, hire and train pilots at a rate necessary to support our operations.

These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

In addition to the foregoing, our pilot premium wage and bonus initiatives have substantially increased our labor costs and continue to negatively impact our operations and financial condition.

Other regional air carriers have implemented similar measures, which has only served to increase the competition for qualified pilots and the costs associated with hiring pilots.

We expect these increased costs, to the extent they persist, to materially and adversely impact our financial condition and results of operations in future periods.

If the high levels of pilot attrition persist and we are unable to attract, hire and retain pilots at a rate sufficient to support required utilization levels under our CPAs, we may be required to issue credits or provide offsets to our major partners, as we have done in the past, and to reduced flight schedules with our major partners, which has resulted in and may continue to result in monetary performance penalties under our CPAs, as well as give rise to the ability of our major partners in certain circumstances to elect to remove aircraft from the scope of our CPAs.

As part of our Amended and Restated United CPA, United has increased rates to cover our pilot pay increases instituted in September 2022.

As such, these increased costs have not materially and adversely impact our financial condition and results of operations.

If the high levels of pilot attrition return and we are unable to attract, hire and retain pilots at a rate sufficient to support required utilization levels under our CPA, we may be required to issue credits or provide offsets to United, as we have done in the past, and to reduced flight schedules with United, which has resulted in and may continue to result in monetary performance penalties under our CPA, as well as give rise to the ability of United in certain circumstances to elect to remove aircraft from the scope of our CPA.

Should any of these events arise in the future, they could have a material and adverse impact on our financial condition and results of operations.

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This shortage of pilots has driven up our pilot salaries and sign-on bonuses and resulted in a material increase in our labor costs.

A continued shortage of pilots could require us to further increase our labor costs, which would result in a material reduction in our earnings.

Our major partners may expand their direct operation of regional jets or seek other independent airlines to service their regional aircraft needs, thus limiting the expansion of our relationships with them.

We depend on our major partners electing to contract with us instead of operating their own regional jets or operating their own " captive " regional airlines through wholly owned subsidiaries.

A continued shortage of pilots could require us to further increase our labor costs, which could result in a material reduction in our earnings.

United may expand its direct operation of regional jets or seek other independent airlines to service their regional aircraft needs, thus limiting the expansion of our relationships with them.

We depend on United electing to contract with us instead of operating their own regional jets or operating their own " captive " regional airlines through wholly owned subsidiaries.

Currently, the captive regional airlines include Endeavor (owned by Delta), Envoy (owned by American), PSA (owned by American), Piedmont (owned by American), and Horizon (owned by Alaska).

These major airlines possess the financial and other resources to acquire and operate their own regional jets, create, or grow their own captive regional airlines, or acquire other regional air carriers instead of entering into contracts with us.

In particular, American, which procures approximately 40% of its regional flying from its wholly owned regional subsidiaries, has expressed a goal of increasing its share to a majority of American's regional flying over time.

We have no guarantee that in the future our major partners will choose to enter into contracts with us, or renew their existing agreements with us, instead of operating their own regional jets, allocating flying to their captive regional airlines, or entering into relationships with competing regional airlines.

A decision by American or United to phase out or limit our capacity purchase agreements or to enter into similar agreements with our competitors could have a material adverse effect on our business, financial condition, or results of operations.

We may be limited from expanding our flying within our major partners' flight systems and there are constraints on our ability to provide services to airlines other than American and United.

Additional growth opportunities within our major partners' flight systems are limited by various factors, including a limited number of independent regional aircraft that each such major partner can operate in its regional network due to " scope " clauses in the current collective bargaining agreements with their pilots that restrict the number and size of regional jets that may be operated in their flight systems not flown by their pilots.

Except as contemplated by our existing agreements, we cannot be sure that our major partners will contract with us to fly any additional aircraft.

We may not have additional growth opportunities or may agree to modifications to our agreements that reduce certain benefits to us in order to obtain additional aircraft, or for other reasons.

We have no guarantee that in the future United will choose to enter into contracts with us, or renew their existing agreements with us, instead of operating their own regional jets, allocating flying to their captive regional airlines, or entering into relationships with competing regional airlines.

A decision by United to phase out or limit our CPA or to enter into similar agreements with our competitors would have a material adverse effect on our business, financial condition, or results of operations.

We may be limited from expanding our flying within United flight systems and there are constraints on our ability to provide services to airlines other than United.

Additional growth opportunities within United's flight system are limited by various factors, including a limited number of independent regional aircraft that United can operate in its regional network due to " scope " clauses in the current collective bargaining agreements with their pilots that restrict the number and size of regional jets that may be operated in their flight systems not flown by their pilots.

Except as contemplated by our existing agreement, we cannot be sure that United will contract with us to fly any additional aircraft.

We may not have additional growth opportunities or may agree to modifications to our agreement that reduce certain benefits to us in order to obtain additional aircraft, or for other reasons.

Given the competitive nature of the airline industry, we believe limited growth opportunities may result in competitors accepting reduced margins and less favorable contract terms in order to secure new or additional capacity purchase operations.

Even if we are offered growth opportunities by our major partners, those opportunities may involve economic terms or financing commitments that are unacceptable to us.

Additionally, our major partners may reduce the number of regional jets in their system by not renewing or extending existing flying arrangements with regional operators or transitioning those flying arrangements to their own captive regional carriers.

Any one or more of these factors may reduce or eliminate our ability to expand our flight operations with our existing major partners.

Additionally, our capacity purchase agreements limit our ability to provide regional flying services to other airlines in certain major airport hubs of American and United.

Even if we are offered growth opportunities by United, those opportunities may involve economic terms or financing commitments that are unacceptable to us.

Additionally, United may reduce the number of regional jets in its system by not renewing or extending existing flying arrangements with regional operators or transitioning those flying arrangements to their own captive regional carriers.

Any one or more of these factors may reduce or eliminate our ability to expand our flight operations with United.

Additionally, our CPA limits our ability to provide regional flying services to other airlines in certain major airport hubs of United.

These restrictions may make us a less attractive partner to other major airlines whose regional flying needs do not align with our geographical restrictions.

The residual value of our owned aircraft may be less than estimated in our depreciation policies.

As of September 30, 2022, we had approximately $865.3 million of property and equipment and related assets, net of accumulated depreciation, of which $660.8 million relates to aircraft.

As of September 30, 2023, we had approximately $698.0 million of property and equipment and related assets, net of accumulated depreciation, of which $569.9 million relates to owned aircraft.

In accounting for these long-lived assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate.

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An impairment on any of the aircraft types we operate or an increased level of depreciation expense resulting from a change to our depreciation policies could result in a material negative impact to our financial results.

For our fiscal year ended September 30, 2022, we recognized approximately $109.7 million of impairment losses on our owned and leased aircraft and related assets.

See Note 8 – “ Balance Sheet Information ” in the notes to the audited consolidated financial statements included in this Annual Report on Form 10-K for further discussion of our impairment of long-lived assets.

For our fiscal year ended September 30, 2023, we recognized approximately $50.6 million of impairment losses on our owned aircraft and related assets.

See Note 8 –

“Balance Sheet Information”

in the notes to the audited

consolidated financial statements included in this Annual Report on Form 10-K for further discussion of our impairment of long-lived assets.

The amounts we receive under our agreements may be less than the corresponding costs we incur.

Under our capacity purchase agreements with American and United and flight services agreement with DHL, a portion of our compensation is based upon pre-determined rates typically applied to production statistics (such as departures and block hours flown).

Under our CPA with United and FSA with DHL, a portion of our compensation is based upon pre-determined rates typically applied to production statistics (such as departures and block hours flown).

The primary operating costs intended to be compensated by the pre-determined rates include labor costs, including crew training costs, certain aircraft maintenance expenses and overhead costs.

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If our operating costs for labor, aircraft maintenance and overhead costs exceed the compensation earned from our pre-determined rates under our agreements, our financial position and operating results will be negatively affected.

During our fiscal year ended September 30, 2023, the revenue received under our CPA was not adequate to cover all corresponding costs incurred.

Strikes, labor disputes and increased unionization of our workforces may adversely affect our ability to conduct our business and reduce our profitability.

As of September 30, 2023, approximately 63.1% of our workforce was represented by labor unions, including the Air Line Pilots Association, International ("ALPA") and the Association of Flight Attendants ("AFA").

While we remain engaged in negotiations with ALPA over other areas of our collective bargaining agreement, we believe these pay increases will positively impact our ability to attract, hire, and retain pilots in future periods.

In August 2022, we entered into a Letter of Agreement with the ALPA, which provided for increased overall hourly pay increases of nearly 118% for captains and 172% for new-hire first officers.

These pay increases have positively impacted our ability to attract, hire, and retain pilots in fiscal 2023, and attrition levels have dropped to a pre-COVID level.

The inability to negotiate acceptable contracts with existing unions or with new unions could result in work stoppages by the affected workers, lost revenues resulting from the cancellation of flights and increased operating costs as a result of higher wages or benefits paid to union members.

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We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may unionize.

Our labor agreements with the ALPA and AFA are amendable as of September 30, 2023.

We are also subject to various ongoing employment disputes outside of the collective bargaining agreements.

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Under the RLA, collective bargaining agreements generally contain "amendable dates" rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the NMB.

This process continues until either the parties

have reached agreement on a new collective bargaining agreement, or the parties have been released to " self-help " by the NMB.

This process continues until either the parties have reached agreement on a new collective bargaining agreement, or the parties have been released to "self-help" by the NMB.

In most circumstances, the RLA prohibits strikes;

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Any strike, labor dispute or increased unionization among our employees could disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business strategies.

For example, if a labor strike were to continue for several consecutive days, our major partners may have cause to terminate the applicable CPA.

For example, if a labor strike were to continue for a specified number of consecutive days or longer, United may have cause to terminate the CPA.

As a result, our business, results of operations and financial condition may be materially adversely affected.

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We may not be successful in extending the flying contract terms on these aircraft with our major partners.

In that event, we intend to pursue alternative uses for those aircraft over the remaining portions of their leases including, but not limited to, operating the aircraft with another major airline under a negotiated capacity purchase agreement, subleasing the aircraft to another operator or marketing them for sale.

that event, we intend to pursue alternative uses for those aircraft over the remaining portions of their leases including, but not limited to, operating the aircraft with another major airline under a negotiated CPA, subleasing the aircraft to another operator or marketing them for sale.

Additionally, we may negotiate an early lease return agreement with an aircraft's lessor.

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Additionally, if we are unable to extend a flying contract with an existing major partner but reach an agreement to place an aircraft into service with a different major partner, we likely will incur inefficiencies and incremental costs, such as changing the aircraft livery, which would negatively impact our financial results.

Furthermore, we have lease aircraft buyout obligations on certain aircraft due in March 2024 that we may not be able to meet.

Our inability to meet such buyout obligations could have a material adverse effect on our business, results of operations, and financial condition.

We may incur substantial maintenance costs as part of our leased aircraft return obligations.

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Disagreements regarding the interpretation of our agreements with our major partners could have an adverse effect on our operating results and financial condition.

To the extent that we experience disagreements regarding the interpretation of our capacity purchase or other agreements, we will likely expend valuable management time and financial resources in our efforts to resolve those disagreements.

To the extent that we experience disagreements regarding the interpretation of our CPA or FSA, we will likely expend valuable management time and financial resources in our efforts to resolve those disagreements.

Those disagreements may result in litigation, arbitration, settlement negotiations, or other proceedings.

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Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

As of September 30, 2022, we had aggregate federal and state net operating loss (“NOL”) carryforwards of approximately $591.4 million and $247.0 million, which expire in fiscal years 2027-2038 and 2022-2042, respectively.

As of September 30, 2023, we had aggregate federal and state net operating loss (“NOL”) carryforwards of approximately $562.6 million and $233.5 million, which expire in fiscal years 2027-2038 and 2022-2042, respectively.

Approximately $194.2 million of our federal NOL carryforwards are not subject to expiration.

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We may be unable to use these losses to offset income before such unused losses expire.

However, US federal net operating losses generated in fiscal years 2018 and forward are not subject to expiration and, if not utilized by fiscal 2023, are only available to offset eighty percent of taxable income each year due to changes in tax law attributable to the passage of Tax Cuts and Jobs Act.

each year due to changes in tax law attributable to the passage of Tax Cuts and Jobs Act.

In addition, if a corporation undergoes an "ownership change" (generally defined as a greater than 50% cumulative change in the equity ownership of certain shareholders over a rolling three-year period) under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the corporation's ability to use its pre- change net operating loss carryforwards and other pre-change tax attributes to offset future taxable income or taxes may be limited.

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We may not be able to successfully implement our growth strategy.

Our growth strategy includes, among other things, providing regional flying to other airlines and/or entering into the cargo and express shipping business.

We face numerous challenges in implementing our growth strategy, including our ability to:

Our growth strategy has historically included, among other things, providing regional flying to other airlines and/or entering into the cargo and express shipping business.

We face numerous challenges in implementing this growth strategy in the future, including our ability to:

provide regional flying to other airlines with hub cities that overlap with our existing airline partners;

enter into relationships with third parties to carry their cargo on terms that are acceptable to us.

Our capacity purchase agreements limit our ability to provide regional flying services to other airlines in certain major airport hubs of American and United.

Our United CPA limits our ability to provide regional flying services to other airlines in certain major airport hubs of United.

These restrictions may make us a less attractive partner to other major airlines whose regional flying needs do not align with our geographical restrictions.

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and AirTran Airways in 2011, United and Continental Airlines in 2010 and Delta and Northwest Airlines in 2008.

Any additional consolidation or significant alliance activity within the airline industry could further limit the number of potential partners with whom we could enter into capacity purchase agreements.

Any additional consolidation or significant alliance activity within the airline industry could further limit the number of potential partners with whom we could enter into CPAs.

We are subject to significant governmental regulation.

All interstate air carriers, including us, are subject to regulation by the DOT, the FAA and other governmental agencies, as described in “Item 1.

Government Regulation.” We cannot predict whether we will be able to comply with all present and future laws, rules, regulations, and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations.

All interstate air carriers, including us, are subject to regulation by the DOT, the FAA and other governmental agencies, as described in “Item 1.

Government Regulation.”

We cannot predict whether we will be able to comply with all present and future laws, rules, regulations, and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations.

We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules, and regulations to which we are subject.

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Risks Related to Owning Our Common Stock

We are currently not in compliance with the Nasdaq continued listing requirements.

If we are unable to regain compliance with Nasdaq’s listing requirements, our securities could be delisted, which could affect our common stock’s market price and liquidity and reduce our ability to raise capital.

On November 3,2023, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market LLC ("Nasdaq") indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer meet Nasdaq Listing Rule 5450(a)(1), which requires listed companies to maintain a minimum bid price of at least $1.00 per share.

Nasdaq Listing Rule 5810(c)(3)(A) provides a compliance period of 180 calendar days, or until May 1, 2024, in which to regain compliance with the minimum bid price requirement.

If we evidence a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days during the 180-day compliance period, we will automatically regain compliance.

In the event we do not regain compliance with the $1.00 bid price requirement by May 1, 2024, we may be eligible for consideration of a second 180-day compliance period.

To qualify for this additional compliance period, the Company would be required to transfer the listing of the common stock to the Nasdaq Capital Market.

To qualify, the Company must meet the continued listing requirement for the applicable market value of publicly held shares requirement and all other applicable initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price requirement.

In addition, the Company would also be required to notify Nasdaq of its intent to cure the minimum bid price deficiency.

If we fail to regain compliance with the Nasdaq continued listing standards, Nasdaq will provide notice that our common stock will be subject to delisting.

We would then be entitled to appeal that determination to a Nasdaq hearings panel.

The notification has no immediate effect on the listing of our common stock on Nasdaq.

We intend to monitor the closing bid price of our common stock and consider our available options in the event the closing bid price of our common stock remains below $1.00 per share.

We cannot assure you that we will be able to regain compliance with Nasdaq listing standards.

Our failure to continue to meet the minimum bid requirement would result in our common stock being delisted

We and holders of our securities could be materially adversely impacted if our securities are delisted from Nasdaq.

In particular:

we may be unable to raise equity capital on acceptable terms or at all;

we may lose the confidence of our customers, which would jeopardize our ability to continue our business as currently conducted;

the price of our common stock will likely decrease as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws;

holders may be unable to sell or purchase our securities when they wish to do so;

we may become subject to stockholder litigation;

we may lose the interest of institutional investors in our common stock;

we may lose media and analyst coverage;

our common stock could be considered a “penny stock,”

which would likely limit the level of trading activity in the secondary market for our common stock;

we would likely lose any active trading market for our common stock, as it may only be traded on one of the over-the-counter markets, if at all.

The market price of our common stock may be volatile, which could cause the value of an investment in our stock to decline.

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and (ix) general market, political and other economic conditions;

and (x) in response to the risk factors described in this Annual Report on Form 10-K.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of particular companies.

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We have not historically paid dividends on shares of our common stock and do not expect to pay dividends on such shares in the foreseeable future.

Additionally, certain of our aircraft lease facilities and our loan with the U.S.

Additionally, our United CPA, certain of our aircraft lease facilities, and our loan with the U.S.

Treasury contain restrictions that limit our ability to or prohibit us from paying dividends to holders of our common stock.

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General Risk Factors

We are an "emerging growth company," and the reduced disclosure and regulatory requirements applicable to "emerging growth companies" may make our common stock less attractive to investors.

We qualify as an " emerging growth company " as defined in the Jumpstart Our Business Startups Act of 2012 (the " JOBS Act "), and therefore we may take advantage of reduced disclosure and regulatory requirements that are otherwise generally applicable to public companies.

As an emerging growth company:

we are not required to obtain an attestation and report from our independent registered public accounting firm on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act;

we may present reduced disclosure regarding executive compensation in our periodic reports and proxy statements;

we are not required to hold nonbinding advisory shareholder votes on executive compensation or golden parachute arrangements.

We may take advantage of these reduced requirements until we are no longer an " emerging growth company, " which will occur upon the earliest of (i) the last day of our fiscal year following the fifth anniversary of our IPO (i.e.

September 30, 2023), (ii) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities and (iv) the date on which we are deemed to be a " large accelerated filer " as defined in the Exchange Act.

Investors may find our common stock less attractive or our company less comparable to certain other public companies because we will rely on these reduced requirements.

In addition, the JOBS Act permits an " emerging growth company " to take advantage of an extended transition period to comply with new or revised accounting standards.

This effectively permits the delayed adoption of certain accounting standards until those standards would otherwise apply to private companies.

However, we have elected to " opt out " of such extended transition period and, as a result, we will comply with new or revised accounting standards on the dates for which compliance is required for non-emerging growth companies.

This election is irrevocable.

The requirements of being a public company may strain our resources, increase our operating costs, divert management's attention, and affect our ability to attract and retain qualified board members or executive officers.

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It could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as our executive officers and may divert management’s attention.

Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

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This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an "accelerated filer" or a "large accelerated filer," each as defined in the Exchange Act, or the date we are no longer an "emerging growth company," as defined in the JOBS Act.

We are required to disclose, to the extent material, changes made in our internal control over financial reporting on a quarterly basis.

As of August 10, 2023, we are no longer an "emerging growth company," as defined in the JOBS Act.

As such, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting and we are required to disclose, to the extent material, changes made in our internal control over financial reporting on a quarterly basis.

To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

Management assessed the effectiveness of our internal control over financial reporting at September 30, 2023.

In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013).

Based on our assessments and those criteria, management determined that we did not maintain effective internal control over financial reporting as of September 30, 2022.

CONTROLS AND PROCEDURES.

In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —

Integrated Framework (2013).

Based on our assessments and those criteria, management determined that we maintained effective internal control over financial reporting as of September 30, 2023.

In future periods, if we fail to achieve and maintain an effective internal control environment, it could result in material misstatements in our financial statements and failure to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information and adversely impact our stock price.

UNRESOLVED STAFF COMMENTS

CYBERSECURITY

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What changed 10-K

Item 1A. Risk Factors